Course: Risk & Position Sizing·Lesson 2 of 2·5 min read·Last reviewed 11 May 2026
The 1% rule isn't a rule
Most beginners hear "risk 1% per trade" and treat it like a commandment. It's a starting budget.
Dr. Maya Halloran
CFA · 14 yrs on a commodities prop desk · ex-lecturer, NYU Stern
By the end of this lesson you'll be able to:
- Calculate position size from equity, stop distance, and risk %
- Explain why two traders following "1%" can have different real risk
- Decide when 1% is too much — and when it's lazy
1% is a budget, not a law
Risking 1% per trade means you are willing to lose 1% of account equity if your stop is hit. The formula links stop distance, pip value, and lot size — skipping any step makes "1%" meaningless.
Common mistake
Confusing "1% of equity" with "1% move in the asset." They are not the same number — and one ruins accounts.
Quiz — Test your understanding
1. "Risk 1%" typically means:
2. Wider stops with the same 1% risk require:
3. 1% may be too much when: